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Non-dom tax status in Portugal, FAQ

calendar 7/4/2020 8:00:00 AM
author Admin System
At Mundo we are committed to our main principle which is human freedom.

This includes freedom of movement, freedom of speech, freedom to live wherever you like and pay taxes where is more convenient. It is very important to be tax compliant and being able to prove it, so that you won´t encounter problems when moving your business abroad, traveling, making international transactions and trading globally.

However, the principle is very simple: go where they treat you best. And that is exactly a topic in which we can give you great advice. When it comes to taxes, there are many jurisdictions that offer great incentives and exemptions, some of them even offer tax residencies or special tax regimes that will help you structure your tax planning in a profitable convenient way.

One of our favorite jurisdictions is Portugal, and one of the reasons is that here you can live free of taxes for ten years. This is called the non-dom tax residency and it is of course subject to some conditions. In this article we will answer the frequently asked questions about this great opportunity.

But first, let´s discuss the advantages of Portugal as a living and a business center.

 

People fluent in foreign languages

The Portuguese are fluent in English, which is really helpful for those who don´t have time to learn the beautiful Portuguese language. Their level of English is excellent because the movie theaters show movies in English with subtitles, meaning that Portuguese people are used to hearing English from a young age.

You can always, of course, practice this language by singing along to great music classics like Tom Jobim (from Brazil) or Cesaria Evora.

 

Modern technology and infrastructure

Portugal has been an ambitious country from the colony times when Portuguese explorers used to go to foreign lands in search of adventure and wealth.

You can still find this spirit in the Portuguese people, and you can see this especially by their tendency towards technological innovation. It is not a coincidence that Portugal hosts the world web summit since 2016 and guaranteed covering the event for the next 10 years. This web summit is currently the biggest IT event in all Europe, attracting more than 80.000 people to Lisbon every year, to meet IT experts and to get to know the new industry trends.

A very important thing when you move to a new country are internet connections. If you are a resident in Portugal you have two choices, either live here permanently or visit the country for 1 or 2 weeks a year during the length of your permit. Either way, you probably will want to be in touch with your family and friends that stayed back in your home country. For this reason, the internet infrastructure is something particularly important for expats and perpetual travelers.

In Portugal it is easy to find Wi-Fi services and internet access almost anywhere. Also, optic fiber is well serviced across the whole country, meaning that you will have a high-speed internet for your online family reunions and business meetings.

 

Culture and entertainment

In Portugal you will never get bored, that’s for sure. Besides the beautiful landscapes, this country offers great entertainment and cultural places to visit. In this country you will find 14 places registered by UNESCO such as Porto´s historic center, the cultural landscape of Sintra or the Hieronymites monasteries.

There are also many entertainment offers especially during the summer. Portugal has many festivals where you can not only have the fun of your life but also discover the culture, interact with locals, and simply enjoy yourself. Festa de Saint Antonio and Festa de Sao Joao are some of these festivals, where you can have a great cultural experience.

 

Golden visa program

Portugal is one of the European countries that offer a residency by investment program, you probably know it as Golden Visa. There are two main ways of acquiring residency through a sole owner company or in personal name of investor.

The 2 main investment options available are Real Estate and Investment Funds. With both of them we can support you on doing them remotely till the investor is pre-approved and requested to visit Portugal for Biometrics data and Fingerprints.

Investors that prefer to do their investments in Real Estate have 3 main options:

·   Real Estate from 280.000 euro (refurbished properties, interior of Portugal, older and refurbished properties).

·    Real Estate from 350.000 Euro (refurbished properties, Main cities of Portugal, older and refurbished properties).

·    Real Estate from 500.000 Eur (new properties, Any type of properties in any location).

The good news is that whatever property you acquire you can give it for rent, thus benefiting from the tourism sector and being able to short rent to tourists, getting incredibly good annual returns.

It is worth saying that during the lockdowns, you can still purchase your property remotely, with a POA. We can virtually show you the available properties online.


Alternatively to Real Estate, there is a very good financial investment option: SIF Investment Fund. With a 350.000-euro investment in units of participation of this specific fund, investors qualify for the residency permit in a tax efficient way and diversifying their risks.

This is a great choice, especially if you are not familiar with the real estate market and don´t want to conduct the research that purchasing a property requires.

This investment can also be done remotely and you can have a 6% to 7% ROI per year, and the minimum investment amount is 350,000 euros.

If you want more detailed information on the golden visa program, please check our Mundo TV episode

We also invite you to watch our interview on the Golden Visa program:




Tax and business advantages

Portugal is one of the European countries to offer a non-dom regime, from which you can get a tax exemption for ten years. This is exactly the topic of our article.

Moreover, Portugal enjoys the benefit of over 60 double taxation treaties, which makes it attractive for foreign investment and contributes to the economy of the country.

Also, Madeira, an archipelago that´s located in the Atlantic Ocean, 900 km southwest from the country´s capital, is an important financial center with great tools and incentives that attract foreign investment and business.

This great island offers financial advantages but at the same time is a fully white-listed jurisdiction. It is fully integrated with the Portuguese and the EU´s legal system, being one of the OECD well behaved boys. This, of course, is appealing because it offers business incentives such as reduced taxation, adequate infrastructures, competitive operational costs, but in a totally onshore jurisdiction.

 

Non-dom regime in Portugal

The Investment Tax Code, created by Decree-Law n. 249/2009, approved on September 23rd, implemented a personal Income tax system for the non-regular resident, with the purpose of attracting to Portugal non-resident professionals qualified for activities with high added value, intellectual or industrial propriety or knowhow, as well as beneficiaries of pension schemes granted abroad.

Now we present some of the most frequently asked questions about this regime. This section was written according to experience that we got from our reader´s inquiries in general.

Frequently asked questions

Who may apply for a non-regular resident status?

This tax regime is available for those citizens that meet the following conditions:

•   Deemed resident on Portuguese territory for tax purposes, according to any of the criteria defined under Art 16, paragraph 1 of the Portuguese Personal Income Tax Code (CIRS), in the year to be taxed as a non-regular resident.

   Has not been deemed resident on Portuguese territory during the five years prior to the year pretended to be taxed as a non-regular resident.

When is the applicant able to apply for the non-dom regime?

The application can be made only after the person has been registered as an official resident in Portugal.

If the person already has a Portuguese tax identification number (NIF) but is still registered as non-resident, it is necessary to change the official address and the residency status in any local center for citizen service. This registration needs to be done before March 31 of the following year after becoming a Portuguese resident.

How to register as a resident through the official site “Portal das Finanças” (Financial Authorities Platform)?

After being duly registered as a resident and with the updated address, the resident must register in the portal “Portal das Finanças”. It is necessary to fill a form and follow the steps indicated by the system.

After receiving a password, the individual will be able to submit the application for non-dom status.

If you have been a tax resident in Portugal for the last 5 years, your application will most likely be rejected, in that case it is necessary to gather proof  that you are eligible for this regime and submit this proof within 14 days in any local tax office.

If this process goes well and your application is accepted, then you will be officially registered as a non-regular resident.

This can be a complicated process as it involves the filling of different forms. If you are not familiar with the forms and the system in general, it can be a headache. Luckily, our legal team can help you with this process, so you don´t have to waste your own time in endless procedures. We have wide experience doing this and we can do it fast and effectively. We guarantee a safe and hassle-free process.

What rights are granted to the non-regular resident?

A citizen that is considered a non-regular resident will be taxed according to this regime during 10 consecutive years as long as (and only if) he or she continues to be a non-regular resident during each of those 10 years.

This 10-year period is not extendable.

What type of tax is exempted?

Non-Habitual Residents – Income sourced abroad:

Employment exempt if:

·      It is effectively taxed in the source state, in accordance with the DTT between Portugal and such state.

·      In the absence of such agreement, if it is taxed in the source state and may not be deemed earned in Portugal in accordance with the rules set out in the Personal Income Tax (PIT) Code.

Self-Employment Exempt if:

·       Potentially taxed in the source state, in accordance with the DTT between Portugal and such state.

·       In the absence of such agreement, if potentially taxed in the source state in accordance with the OECD model tax convention on income and on capital, and is not deemed to be earned in Portugal, and source state is not a tax haven.

Pensions exempt if:

·       Taxed in the source state in accordance with a DTT between Portugal and such state.

·       Pursuant to the rules in the PIT code, it is not deemed to be earned in Portugal.

Passive income exempt if:

·       Potentially taxed in the source state, in accordance with the DTT between Portugal and such state.

·       In the absence of such agreement, if potentially taxed in the source state in accordance with the OECD model tax convention on income and on capital, and is not deemed to be earned in Portugal, and source state is not a tax haven.

How about Portugal-sourced income? Is it taxable and at what rates?

In Portugal, non-habitual residents will be paying a flat rate of 20%, on employment and self-employment income in Portugal, for 10 years, on the income generated in the country. Much less, than a regular resident that, according to their income, can pay up to 48%. On the income generated outside Portugal, they will not be taxed.

If I have a Golden Visa residency, can I apply to the non-regular resident regime?

Yes, if the investor changes his tax residency to Portugal.

In order to obtain the tax exemption, what are the stay requirements, if any?

There are 2 options to qualify as Non-Habitual Resident: Staying in Portugal for more than 183 days in one year or holding a property that implies habitual residence at 31st December of the tax year.

NHR tax residence relevant criteria

·       Staying in Portugal for more than 183 days in one or separate periods in each calendar.

·       Holding a property that implies habitual residence as at 31st December of the tax year.

·       Being a crew member of a ship or aircraft at the service of an entity with residence, head office or effective place of management in Portugal as at 31st December.

Are these the same requirements than the Golden Visa program?

No. Golden Visa stay requirements are 14 days on the first 2 years, 14 days on the 2 following years, and 14 days on the last 2 years of the program (year 1 and 2 = 14 days + year 2 and 3 = 14 days + year 4 and 5 = 14 days). However, on the 5th year the resident is already eligible to apply for Citizenship.

What activities are considered of high added value, of scientific, artistic, or technical nature, for the purposes of application of the non-regular resident regime?

Table of activities considered of high added value according to the provisions of Art. 72, nº 6 and Art 81, nº 5 of the Personal Income Tax Code (CIRS):

1.    Architects, engineers and similar.

2.    Visual artists, actors, and musicians.

3.    Auditors.

4.    Doctors and dentists.

5.    Teachers.

6.    Psychologists.

7.    Liberal professionals, technicians and alike.

8.    Investors, managers, and directors.

Can investors apply to the non-regular resident regime?

Investors can only benefit from the non-regular resident tax regime if their income is obtained as a director or manager.

A manager is considered to be:

1.    Anyone under the scope of Decree-Law n. 71/2007, March 27 (Status of Public Manager).

2.    Anyone responsible for permanent establishments of non-resident entities.

3.    Upper management includes all people at a director´s position and with binding powers of the legal person.

Taxable persons may be notified to present the necessary documents (powers of attorney, trade register certificate, minutes, etc.) proving their capacity as director/manager and correspondent power of legal representation.

The Non-Dom Tax regime means that the client is essentially not Taxed in Portugal on all his global income, would that be correct?

Yes Correct. And the income generated in Portugal is taxed on a flat tax rate of just 20%.

His global income would include dividends, stocks, bonds, physical assets, cash holdings and bitcoin, would that be correct?

Correct. All income from abroad including dividends, sticks, bonds, physical assets, cash holdings and bitcoin are tax exempted in Portugal.

As a non-dom, if you say earned 10 million from cryptocurrency and then sent the money to a Portuguese bank, you would pay zero tax, is that correct?

Yes. Any income you earn outside Portugal, even if it´s millions, if you send it to a Portuguese bank it will be tax exempt.

To obtain non-dom status you need to prove to the authorities that you are paying tax or at least register as a tax resident elsewhere, is that correct?

No. The idea is to register the applicant as tax resident in Portugal. And prove that on the last 5 years the applicant was not living in Portugal.

Is there a difference if you are a tax resident in a country which has double taxation agreement with Portugal and one that doesn’t, and if so, what is it?

No, there is absolutely no difference when it comes to applying for non-usual tax residency program. If you are a regular tax resident in Portugal, we need to check the double taxation agreement to understand the level of tax on the specific type of income.

For example, if you applied for a Vanuatu passport and became tax resident there or in Panama, could you obtain non-dom status in Portugal?

No. Only investors changing their tax residency to Portugal are eligible for the Non-Habitual Residents Tax Regime.

What documents do you need to supply to the Portuguese authorities in order to obtain the non-dom tax residency?  i.e. which documents are acceptable to demonstrate that you are tax resident in a foreign country?

The application can be made only after the person has been registered as an official resident in Portugal.

After being duly registered as a resident and with the updated address, the resident must register in the portal “Portal das Finanças”. It is necessary to fill a form and follow the steps indicated by the system.

After receiving a password, the individual will be able to submit the application for the non-dom status.

The specific documentation depends on how you achieved the Portuguese residency in the first place.

If you apply for Golden Visa residency, for example, you will be able to get a tax number with a proof of residency from your country (utility bill from last 3 months coming to your address) and a proof of profession (letter from company). You will also need a tax representative (lawyer), while you are not living in the country. Once your Golden Visa has been approved you will present your residency card and apply for NHR regime.

What happens if you are tax resident nowhere e.g. you live on a yacht or are resident in a zero-tax country?

It is not a problem. One can apply for Non-Habitual residency once you have become a tax resident in Portugal.

 

Conclusion

If you don´t want to sadly see your assets being eaten away by tax erosion, and if you are willing to spend some time per year in a beautiful country with a rich culture and well-educated people, then the non-dom resident regime is your best choice.

Contact us now and get a consultation with our expert.

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